NEW YORK, Feb 19 (Reuters) - U.S. stocks rose on Tuesday as
this year's ongoing surge of merger activity suggested investors
were still finding value in the market even as indexes hover
near five-year highs.

Office Depot Inc surged 12.4 percent to $5.15 after
a person familiar with the matter said the No. 2 U.S. office
supply retailer was in advanced talks to merge with smaller
rival OfficeMax Inc, which jumped 22 percent.

News of the potential move came just days after Berkshire
Hathaway and a partner agreed to acquire H.J. Heinz Co
for $23 billion, and a revised $20 billion takeover of
Mexican brewer Grupo Modelo by Anheuser-Busch
InBev .

Deal activity has helped equities resist a pullback as
investors use dips in stocks as buying opportunities. The S&P is
up about 7 percent so far in 2013 and has climbed for the past
seven weeks in its longest weekly winning streak since January
2011, though most of the weekly gains have been slim.

"Deals are good for the market," said Frank Lesh, a futures
analyst and broker at FuturePath Trading LLC in Chicago. "The
fact that they're being done is a positive."

More than $158 billion in deals has been announced so far in
2013, more than double the activity in the same period last year
and accounting for 57 percent of global deal volumes, according
to Thomson Reuters Deals Intelligence.

Other stocks in the office supplies sector also rose. Larger
rival Staples Inc shot up 12.9 percent to $14.61 as the
best performer on the S&P 500.

"Equity investors have to be encouraged by M&A since, if the
number crunchers are offering large premiums, that shows how
much value is still in the market," said Mike Gibbs, co-head of
the equity advisory group at Raymond James in Memphis,
Tennessee.

On the downside, health insurance stocks tumbled, led by a
6.4 percent drop in Humana Inc to $72.99 after the
company said the government's proposed 2014 payment rates for
Medicare Advantage participants were lower than expected and
would hurt its profit outlook.

Wall Street's strong start to the year for was fueled by
better-than-expected corporate earnings, as well as a compromise
by legislators in Washington that temporarily averted automatic
spending cuts and tax hikes that are predicted to damage the
economy.

The compromise on across-the-board spending cuts postponed
the matter until March 1, at which point the cuts take effect.
Ahead of the debate over the cuts, known as sequestration,
further gains for stocks may be difficult to come by.

"If there's no major contention with sequestration, it looks
like stocks are prepared to handle it, but until then we'll
probably stay in a consolidation period marked by sideways
trading with a slow rate of ascent," said Gibbs.

Economic data showed the NAHB/Wells Fargo Housing Market
index unexpectedly edged down to 46 in February from 47 in the
prior month as builders faced higher material costs.

According to the Thomson Reuters data through Monday
morning, of the 391 companies in the S&P 500 that have reported
results, 70.1 percent have exceeded analysts' expectations,
compared with a 62 percent average since 1994 and 65 percent
over the past four quarters.

Fourth-quarter earnings for S&P 500 companies have risen 5.6
percent, according to the data, above a 1.9 percent forecast at
the start of the earnings season.